Egyptian economist Hani Abu Al-Futoh anticipates that the Central Bank will keep interest rates unchanged during its Monetary Policy Committee meeting on September 24. This decision comes as the general urban inflation rate remains above the targeted range, and core inflation has increased. The committee had previously decided to maintain the deposit rate at 19% and the lending rate at 20% during its August meeting.
According to Abu Al-Futoh, the urban inflation rate recorded 0.1% in August, while the core inflation rate rose to 14.9%. He noted that the persistent high general urban inflation rate, which is above the Central Bank's target range of 7% ±2 percentage points, is a significant concern. The current inflation rate exceeds the upper limit of the target range by 5.5 percentage points.
The economist highlighted that the divergence between general and core inflation rates, with the former decreasing and the latter increasing, suggests that some of the apparent easing in general inflation may be attributed to volatile price elements. However, underlying pressures within the price structure remain. The monthly increase in core inflation to 0.3% reflects ongoing price pressures in certain consumer goods.
Abu Al-Futoh emphasized that Egypt's foreign reserve, which stood at $57.214 billion as of August, provides a sufficient buffer to absorb shocks. However, he also noted that the net foreign assets of the banking system, which totaled around $27.9 billion in July, present a different picture and should not be considered in isolation.
The economist pointed out that foreign investments in local debt instruments recorded a net outflow of $4.4 billion during the first nine months of the 2025/2026 fiscal year. In contrast, revenue from the Suez Canal, amounting to $3.2 billion, partially supported foreign cash inflows. He also mentioned that the exchange rate has been relatively stable, with the dollar trading at around 52.09 pounds for buying and 52.19 pounds for selling on September 17.
Abu Al-Futoh identified several risks, including potential decreases in the value of the pound, which could increase import costs and affect local commodity prices. He also noted that regional tensions may impact global energy prices, influencing transportation and production costs. Furthermore, the high public debt, which stands at 83.8% of GDP, poses a structural challenge, increasing debt servicing costs and limiting government spending.
The economist concluded that the most likely scenario is that the Central Bank will maintain interest rates, given the current balance between steady urban inflation and rising core inflation. This forecast aligns with the International Monetary Fund's prediction that general inflation will reach 16.7% in the second half of 2026. Key factors influencing this decision include the trajectory of core inflation, exchange rate pressures, and global energy prices.
Key points
- The Central Bank is expected to keep interest rates unchanged at its September 24 meeting.
- Core inflation has risen to 14.9%, while general urban inflation remains above the targeted range.
- Egypt's foreign reserve provides a buffer to absorb shocks, but net foreign assets in the banking system present a different picture.
